SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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ALLEGHANY CORPORATION
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(Name of Registrant as Specified In Its Charter)
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ALLEGHANY CORPORATION
375 PARK AVENUE
NEW YORK, NEW YORK 10152
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 23, 2004 AT 10:00 A.M., LOCAL TIME
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RSUI GROUP, INC.
945 EAST PACES FERRY ROAD, 18TH FLOOR
ATLANTA, GEORGIA
Notice is hereby given that the 2004 Annual Meeting of Stockholders of
Alleghany Corporation (the "Company") will be held at the offices of the
Company's subsidiary RSUI Group, Inc., 945 East Paces Ferry Road, 18th Floor,
Atlanta, Georgia, on Friday, April 23, 2004 at 10:00 a.m., local time, for the
following purposes:
1. To elect three directors for terms expiring in 2007.
2. To consider and take action upon a proposal to ratify the selection of
KPMG LLP, independent certified public accountants, as independent
auditors for the Company for the year 2004.
3. To transact such other business as may properly come before the meeting,
or any adjournment or adjournments thereof.
Holders of common stock of the Company are entitled to vote for the election
of directors and on each of the other matters set forth above.
The stock transfer books of the Company will not be closed. The Board of
Directors has fixed the close of business on March 1, 2004 as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
2004 Annual Meeting and any adjournments thereof.
You are cordially invited to be present. Stockholders who do not expect to
attend in person are requested to sign and return the enclosed form of proxy in
the envelope provided. At any time prior to their being voted, proxies are
revocable by written notice to the Secretary of the Company or by voting at the
2004 Annual Meeting in person.
By order of the Board of Directors
ROBERT M. HART
Senior Vice President, General
Counsel and Secretary
March 8, 2004
ALLEGHANY CORPORATION
375 PARK AVENUE
NEW YORK, NEW YORK 10152
PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 23, 2004
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This statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Alleghany Corporation (the "Company") from holders
of the Company's outstanding shares of common stock ("Common Stock") entitled to
vote at the 2004 Annual Meeting of Stockholders of the Company (and at any and
all adjournments thereof) for the purposes referred to below and set forth in
the accompanying Notice of Annual Meeting of Stockholders. These proxy materials
are being mailed to stockholders on or about March 8, 2004.
The Board of Directors has fixed the close of business on March 1, 2004 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, said meeting. Holders of Common Stock are entitled to one vote for
each share held of record on the record date with respect to each matter to be
acted on at the 2004 Annual Meeting.
On February 25, 2004, 7,511,087 shares of Common Stock were outstanding and
entitled to vote. The number of shares of Common Stock as of February 25, 2004,
and the share ownership information provided elsewhere herein, do not include
shares to be issued by the Company in respect of the dividend of one share of
Common Stock for every 50 shares of Common Stock outstanding to be paid by the
Company on April 23, 2004 to stockholders of record at the close of business on
April 1, 2004.
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PRINCIPAL STOCKHOLDERS
As of February 25, 2004, approximately 35.3 percent* of the Company's
outstanding Common Stock was believed to be beneficially owned by F.M. Kirby,
Allan P. Kirby, Jr., their sister, Grace Kirby Culbertson, and the estate or one
or more beneficiaries of the estate of Ann Kirby Kirby, the sister of Messrs.
Kirby and Mrs. Culbertson, primarily through a number of family trusts.
The following table sets forth, as of February 25, 2004, the beneficial
ownership of Common Stock of certain persons believed by the Company to be the
beneficial owners of more than five percent of the Company's outstanding Common
Stock.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
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SOLE VOTING SHARED VOTING POWER
NAME AND ADDRESS POWER AND/OR SOLE AND/OR SHARED PERCENT
OF BENEFICIAL OWNER INVESTMENT POWER INVESTMENT POWER TOTAL OF CLASS
------------------- ----------------- ------------------- ------- --------
F.M. Kirby.............................. 312,638 679,527 992,165(1) 13.2
17 DeHart Street
P.O. Box 151
Morristown, NJ 07963
Allan P. Kirby, Jr. .................... 539,899 -- 539,899(2) 7.2
14 E. Main Street
P.O. Box 90
Mendham, NJ 07945
Grace Kirby Culbertson.................. 155,853 256,459 412,312(3) 5.5
Blue Mill Road
Morristown, NJ 07960
Estate of Ann Kirby Kirby............... 317,881 392,786 710,667(4) 9.5
c/o Carter, Ledyard & Milburn LLP
2 Wall Street
New York, NY 10005
Franklin Mutual Advisers, LLC........... 727,473 -- 727,473(5) 9.7
51 John F. Kennedy Parkway
Short Hills, NJ 07078
The PNC Financial Services Group,
Inc. ................................. (6) (6) 419,341(6) 5.6
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222
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* See Note (4) on page 4.
(1) Includes 110,344 shares of Common Stock held by F.M. Kirby as sole trustee
of trusts for the benefit of his children; 477,215 shares held by a trust of
which Mr. Kirby is co-trustee and primary beneficiary; and 202,312 shares
held by trusts for the benefit of his children and his children's
descendants as to which
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Mr. Kirby was granted a proxy and, therefore, had shared voting power. Mr.
Kirby disclaims beneficial ownership of the Common Stock held for the
benefit of his children and for the benefit of his children and his
children's descendants. Mr. Kirby held 202,294 shares directly.
(2) Includes 305,655 shares held by a trust of which Allan P. Kirby, Jr. is
co-trustee (with the final right to vote) and beneficiary; and 14,168 shares
issuable under stock options granted pursuant to the Amended and Restated
Directors' Stock Option Plan and the 2000 Directors' Stock Option Plan. Mr.
Kirby held 220,076 shares directly.
(3) Includes 46,239 shares of Common Stock held by Grace Kirby Culbertson as
co-trustee of trusts for the benefit of her children; and 210,220 shares
held by trusts for the benefit of Mrs. Culbertson and her descendants, of
which Mrs. Culbertson is co-trustee. Mrs. Culbertson held 155,853 shares
directly.
(4) Prior to her death in 1996, Ann Kirby Kirby had disclaimed being a
controlling person or member of a controlling group with respect to the
Company, and had declined to supply information with respect to her
ownership of Common Stock. Since her death, the representatives of the
estate of Mrs. Kirby have declined to supply information with respect to
ownership of Common Stock by her estate or its beneficiaries; therefore, the
Company does not know whether her estate or any beneficiary of her estate
beneficially owns more than five percent of its Common Stock. However, Mrs.
Kirby filed a statement on Schedule 13D dated April 5, 1982 with the
Securities and Exchange Commission reporting beneficial ownership, both
direct and indirect through various trusts, of 710,667 shares of the common
stock of Alleghany Corporation, a Maryland corporation and the predecessor
of the Company ("Old Alleghany"). Upon the liquidation of Old Alleghany in
December 1986, stockholders received $43.05 in cash and one share of Common
Stock for each share of Old Alleghany common stock. The stock ownership
information provided herein as to the estate of Mrs. Kirby is based solely
on her statement on Schedule 13D and does not reflect the two-percent stock
dividends paid in each of the years 1985 through 1997 and 1999 through 2003
by Old Alleghany or the Company; if Mrs. Kirby, her estate and her
beneficiaries had continued to hold in the aggregate 710,667 shares together
with all stock dividends received in consequence through the date hereof,
the beneficial ownership reported herein would have increased by 304,330
shares.
(5) According to an amendment dated February 11, 2004 to a Schedule 13G
statement filed by Franklin Mutual Advisers, LLC ("Franklin"), Franklin had
sole voting power and sole dispositive power over 727,473 shares. The
statement indicated that such shares may be deemed to be beneficially owned
by Franklin, an investment advisory subsidiary of Franklin Resources, Inc.
("FRI"), and that, under Franklin's advisory contracts, all voting and
investment power over such shares was granted to Franklin. The statement
also indicated that Charles B. Johnson and Rupert H. Johnson, Jr. were the
principal shareholders of FRI, but beneficial ownership of the shares
reported therein are not attributed to FRI or Messrs. Johnson because
Franklin exercises voting and investment powers over such shares
independently of FRI and Messrs. Johnson. Franklin disclaimed any economic
interest or beneficial ownership of such shares.
(6) According to an amendment dated February 10, 2004 to a Schedule 13G
statement filed by The PNC Financial Services Group, Inc. ("PNC"), a bank
holding company, PNC and certain of its subsidiaries had sole voting power
over 1,289 shares, shared voting power over 305,655 shares (held in a
fiduciary capacity pursuant to a trust agreement which gives the individual
co-trustee the final right to vote), sole dispositive power over no shares
and shared dispositive power over 112,990 shares. PNC Bancorp, Inc. and PNC
Bank, National Association, subsidiaries of PNC, also joined in the filing.
1. ELECTION OF DIRECTORS
Pursuant to the Company's Restated Certificate of Incorporation and
By-laws, the Board of Directors is divided into three separate classes of
directors which are required to be as nearly equal in number as practicable. At
each Annual Meeting of Stockholders, one class of directors is elected to a term
of three years. The Board of Directors currently consists of nine directors.
Allan P. Kirby, Jr., Thomas S. Johnson and James F. Will have been
nominated by the Board of Directors for election as directors at the 2004 Annual
Meeting, each to serve for a term
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of three years, until the 2007 Annual Meeting of Stockholders and until his
successor is duly elected and qualified. Messrs. Kirby, Johnson and Will were
last elected by the stockholders of the Company at the 2001 Annual Meeting of
Stockholders held on April 27, 2001.
Proxies in the enclosed form received from holders of Common Stock will be
voted for the election of the three nominees named above as directors of the
Company unless stockholders indicate otherwise. If any of the foregoing nominees
is unable to serve for any reason (which event is not anticipated), the shares
represented by the enclosed proxy may be voted for such other person or persons
as may be determined by the holders of such proxy unless stockholders indicate
otherwise. Directors will be elected by an affirmative vote of a plurality of
the shares of Common Stock present in person or represented by proxy and
entitled to vote at the 2004 Annual Meeting. Thus, those nominees who receive
the highest, second-highest and third-of three years, until the 2007 Annual
Meeting of Stockholders and until his successor is duly elected and qualified.
Messrs. Kirby, Johnson and Will were last elected by the stockholders of the
Company at the 2001 Annual Meeting of Stockholders held on April 27, 2001.
Proxies in the enclosed form received from holders of Common Stock will be
voted for the election of the three nominees named above as directors of the
Company unless stockholders indicate otherwise. If any of the foregoing nominees
is unable to serve for any reason (which event is not anticipated), the shares
represented by the enclosed proxy may be voted for such other person or persons
as may be determined by the holders of such proxy unless stockholders indicate
otherwise. Directors will be elected by an affirmative vote of a plurality of
the shares of Common Stock present in person or represented by proxy and
entitled to vote at the 2004 Annual Meeting. Thus, those nominees who receive
the highest, second-highest and third-highest numbers of votes for their
election as directors will be elected, regardless of the number of shares that
are not voted for the election of such nominees. Shares with respect to which
authority to vote for any nominee or nominees is withheld will not be counted in
the total number of shares voted for such nominee or nominees.
The following information includes the age, the year in which first elected
a director of the Company or Old Alleghany, the principal occupation (in
italics), and other directorships of each of the nominees named for election as
directors, and of the other current directors of the Company whose terms will
not expire until 2005 or 2006.
Nominee for Election: President, Liberty Square, Inc.
Allan P. Kirby, Jr. [PHOTO of Alan P. Kirby, (investments); management of family and
Age 72 Jr.] personal affairs. Chairman of the
Director since 1963 Executive Committee.
Chairman and Chief Executive Officer,
GreenPoint Financial Corp. and its
Nominee for Election: subsidiary GreenPoint Bank (banking);
Thomas S. Johnson [PHOTO of Thomas S. director, R.R. Donnelley & Sons Company,
Age 63 Johnson] The Phoenix Companies, Inc. and Lower
Director since 1997 and Manhattan Development Corporation. Member
for 1992-1993 of the Audit and Nominating and Governance
Committees.
President, Saint Vincent College
(education); non-executive Chairman, World
Nominee for Election: Minerals Inc. and Chairman, Specialty
James F. Will [PHOTO of James F. Will] Steel Industry of North America; director,
Age 65 Breeze Industrial Products Corporation.
Director since 1992 Member of the Executive and Nominating and
Governance Committees.
F.M. Kirby Chairman of the Board, Alleghany
Age 84 [PHOTO of F.M. Kirby] Corporation. Member of the Executive
Director since 1958 Committee.
Term expires in 2005
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Retired Executive, KeyCorp (banking); Chairman,
Roger Noall The Victory Portfolios, The Victory
Age 68 [PHOTO of Roger Noall] Institutional Funds and The Victory Variable
Director since 1996 Insurance Funds. Chairman of the Nominating and
Term expires in 2005 Governance Committee and member of the
Compensation Committee.
Professor of Business Administration, Fuqua
School of Business at Duke University
(education); Chairman, Public Broadcasting
Rex D. Adams System and Centre for Economic Policy Research;
Age 64 [PHOTO of Rex D. Adams] director, AMVESCAP PLC and Vintage Petroleum,
Director since 1999 Inc.; trustee, Committee for Economic
Term expires in 2005 Development, Vera Institute of Justice and
Woods Hole Oceanographic Institution. Member of
the Audit Committee.
John J. Burns, Jr. President and chief executive officer,
Age 72 [PHOTO of John J. Burns, Alleghany Corporation; director, Burlington
Director since 1968 Jr.] Northern Santa Fe Corporation, Mineral Holdings
Term expires in 2006 Inc. and World Minerals Inc. Member of the
Executive Committee.
President and Chief Executive Officer,
Dan R. Carmichael Ohio Casualty Corporation (property and
Age 59 [PHOTO of Dan R. casualty insurance); director, Ohio
Director since 1993 Carmichael] Casualty Corporation and Platinum
Term expires in 2006 Underwriters Holdings, Ltd. Chairman of
the Compensation Committee and member of
the Audit Committee.
William K. Lavin Financial Consultant; Chairman and
Age 59 [PHOTO of William K. Secretary, Novex Systems International,
Director since 1992 Lavin] Inc. Chairman of the Audit Committee and
Term expires in 2006 member of the Compensation Committee.
All of the foregoing persons have had the principal occupations indicated
throughout the last five years, except as follows. Mr. Will has been President
of Saint Vincent College since July 1, 2000. Prior thereto, Mr. Will was
President and Chief Executive Officer of Armco Inc. (steel manufacturing and
metals processing) until his retirement on September 30, 1999. Mr. Noall was an
Executive of KeyCorp until his retirement on March 1, 2000. Mr. Adams has been a
Professor of Business Administration at the Fuqua School of Business at Duke
University since July 1, 2001, and was Dean of the Fuqua School of Business
prior thereto. Mr. Carmichael has been President and Chief Executive Officer of
Ohio Casualty Corporation since December 12, 2000, and served as the President
and Chief Executive Officer of IVANS, Inc. (communications technology and
remarketer) prior thereto.
F.M. Kirby and Allan P. Kirby, Jr. are brothers.
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Jefferson W. Kirby, a son of F.M. Kirby, was a Vice President of the
Company until June 30, 2003 and in that capacity was paid during 2003 $127,545
in salary and other compensation, $495,560 in settlement of all of the
outstanding performance shares awarded to him under the 1993 Long-Term Incentive
Plan (the "1993 Plan") and the 2002 Long-Term Incentive Plan (the "2002 Plan"),
and $277,598 representing a payout of all of the savings benefits which he had
accrued under the Company's Deferred Compensation Plan. Pursuant to the approval
of the Audit Committee of the Board of Directors, on authority delegated by the
Board without F.M. Kirby's participation, during 2003 the Company made
investments aggregating $10.0 million in an investment fund formed and managed
by a limited liability company owned by Jefferson W. Kirby. The limited
liability company is entitled to an annual fee equal to 20 percent of certain of
the investment gains allocated to an investor's account and a monthly management
fee equal to 0.125 percent (1.5 percent annum) of the net assets of an
investor's account. In 2003, the Company paid a total of $74,799.38 in such fees
to the limited liability company.
The Board of Directors held nine meetings in 2003. Each director attended
more than 75 percent of the aggregate number of meetings of the Board of
Directors and meetings of the committees of the Board of Directors on which he
served that were held in 2003.
Pursuant to the New York Stock Exchange's listing standards, effective as
of the date of the 2004 Annual Meeting, the Company is required to have a
majority of independent directors, and no director qualifies as independent
unless the Board of Directors affirmatively determines that the director has no
material relationship with the Company. The Board of Directors has determined
that Messrs. Johnson, Will, Noall, Adams, Carmichael and Lavin have no material
relationship with the Company other than in their capacities as members of the
Board and committees thereof, and thus are independent directors of the Company.
In the case of Mr. Will, who serves as non-executive Chairman and a member of
the Audit Committee of World Minerals Inc., a subsidiary of the Company, this
determination was based upon the non-executive nature of such positions, the
level of compensation received by Mr. Will for service in such positions and the
insignificance of such compensation to Mr. Will. The other independent directors
have no relationship with the Company other than as directors and members of
committees.
Interested parties may communicate directly with any individual director,
the non-management directors as a group or the Board as a whole sending such
communication by mail to the Secretary of the Company at the Company's principal
executive offices (Alleghany Corporation, 375 Park Avenue, New York, NY 10152).
Such communications will be delivered unopened (1) if addressed to a director,
to the director, (2) if addressed to the non-management directors, to the
Chairman of the Nominating and Governance Committee who will report thereon to
the non-management directors, or (3) if addressed to the Board, to the Chairman
of the Board who will report thereon to the Board.
The Company does not have a policy with regard to attendance by directors
at Annual Meetings of Stockholders. Two directors attended the 2003 Annual
Meeting of Stockholders.
The Executive Committee of the Board of Directors (the "Executive
Committee") may exercise certain powers of the Board of Directors regarding the
management and direction of
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the business and affairs of the Company when the Board of Directors is not in
session. All action taken by the Executive Committee is reported to, and
reviewed by, the Board of Directors. The Executive Committee held two meetings
in 2003.
The Audit Committee of the Board of Directors (the "Audit Committee") is
directly responsible for the appointment, compensation, retention and oversight
of the work of the independent auditors (including approving in advance all
audit services and permissable non-audit services to be provided by the
independent auditors) and for the evaluation of their qualifications,
performance and independence. The Audit Committee also reviews and makes reports
and recommendations to the Board of Directors with respect to the following
matters: (i) the audited consolidated annual financial statements of the Company
and its subsidiaries, including management's discussion and analysis of
financial condition and results of operation and critical accounting policies,
to be incorporated in the Company's Annual Report on Form 10-K to the Securities
and Exchange Commission, and whether to recommend such incorporation, (ii) the
unaudited consolidated quarterly financial statements of the Company and its
subsidiaries, including management's discussion and analysis thereof, to be
included in the Company's Quarterly Reports on Form 10-Q to the Securities and
Exchange Commission, (iii) the Company's policies with respect to risk
assessment and risk management, (iv) the adequacy and effectiveness of the
Company's internal controls, disclosure controls and procedures and internal
auditors, and (v) the quality and acceptability of the Company's accounting
policies, including critical accounting policies and practices and the estimates
and assumptions used by management in the preparation of the Company's financial
statements. The Audit Committee held eight meetings in 2003.
The current members of the Audit Committee are Messrs. Lavin, Adams,
Carmichael and Johnson. The Board of Directors has determined that each of these
members has the qualifications set forth in the New York Stock Exchange's
listing standards regarding financial literacy and accounting or related
financial management expertise, and that Mr. Lavin, the Chairman of the Audit
Committee, is an audit committee financial expert, as defined by the Securities
and Exchange Commission. The Board of Directors has also determined that each of
the members of the Audit Committee is independent, as defined in the New York
Stock Exchange's listing standards. On February 25, 2004, the Board of Directors
adopted the Audit Committee Charter in the form attached hereto as Appendix A.
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is charged with reviewing and approving the financial goals and
objectives relevant to the compensation of the chief executive officer,
evaluating the chief executive officer's performance in light of such goals and
objectives, and determining (in certain cases, as directed by the Board of
Directors, together with the other independent directors of the Company) the
chief executive officer's compensation based on such evaluation, after having
reviewed the recommendations submitted to it by the Chairman of the Board with
respect thereto. The Compensation Committee also is responsible for reviewing
the recommendations of the chief executive officer concerning the compensation
of the other officers of the Company and the adjustments proposed to be made to
the compensation of the most highly
8
paid officers of each operating unit of the Company, reporting to the Board of
Directors with respect thereto, and making such recommendations to the Board of
Directors with respect thereto as the Compensation Committee may deem
appropriate. In addition, the Compensation Committee, which held three meetings
in 2003, is responsible for administering the 2002 Plan.
The Nominating and Governance Committee of the Board of Directors (the
"Nominating and Governance Committee") is charged with identifying and screening
candidates, consistent with criteria approved by the Board of Directors, and
making recommendations to the Board of Directors as to persons to be nominated
by the Board of Directors for election thereto by the stockholders or to be
chosen by the Board of Directors to fill newly created directorships or
vacancies on the Board of Directors. In addition, the Nominating and Governance
Committee is responsible for developing and recommending to the Board of
Directors a set of corporate governance principles applicable to the Company and
overseeing the evaluation of the Board of Directors and the Company's
management. The Nominating and Governance Committee held no meetings in 2003.
The current members of the Nominating and Governance Committee are Messrs.
Noall, Johnson and Will. The Board of Directors has determined that each of
these members is independent as defined in the New York Stock Exchange's listing
standards. On February 25, 2004, the Board of Directors adopted the Nominating
and Governance Committee Charter in the form attached hereto as Appendix B.
SECURITIES OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of February 25, 2004, the beneficial
ownership of Common Stock of each of the nominees named for election as a
director, each of the other current directors and each of the executive officers
named in the Summary Compensation Table on page 13.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
------------------------------------------------------------------
SOLE VOTING SHARED VOTING POWER
POWER AND SOLE AND/OR SHARED PERCENT
NAME OF BENEFICIAL OWNER INVESTMENT POWER INVESTMENT POWER TOTAL OF CLASS
------------------------ ---------------- ------------------- ------- --------
Allan P. Kirby, Jr....... 539,899 -- 539,899(1) 7.19
Thomas S. Johnson........ 9,945 -- 9,945(2) 0.13
James F. Will............ 20,136 1,468 21,604(2) 0.29
F.M. Kirby............... 312,638 679,527 992,165(3) 13.21
Roger Noall.............. 13,801 -- 13,801(2) 0.18
Rex D. Adams............. 5,275 -- 5,275(2) 0.07
John J. Burns, Jr........ 83,714 -- 83,714(4) 1.11
Dan R. Carmichael........ 17,700 336 18,036(2)(5) 0.24
William K. Lavin......... 13,152 -- 13,152(2) 0.18
Weston M. Hicks.......... 40,600 -- 40,600(6) 0.54
David B. Cuming.......... 46,259 -- 46,259 0.62
Robert M. Hart........... 18,056 -- 18,056 0.24
Peter R. Sismondo........ 10,587 561 11,148(7) 0.15
9
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(1) See Note (2) on page 4.
(2) Includes 8,514 shares of Common Stock in the case of Mr. Johnson, 14,168
shares of Common Stock in the case of Mr. Will, 10,361 shares of Common
Stock in the case of Mr. Noall, 4,891 shares of Common Stock in the case of
Mr. Adams, 14,168 shares of Common Stock in the case of Mr. Carmichael, and
12,246 shares of Common Stock in the case of Mr. Lavin, issuable under stock
options granted pursuant to the Amended and Restated Directors' Stock Option
Plan and the 2000 Directors' Stock Option Plan.
(3) See Note (1) on page 3.
(4) Includes 760 shares of Common Stock owned by Mr. Burns's wife. Mr. Burns had
no voting or investment power over these shares, and he disclaims beneficial
ownership of them. Also includes (i) 7,803 shares of Common Stock
representing the vesting of 7,803 performance shares in settlement of a
special award of performance shares (as adjusted for stock dividends) made
to Mr. Burns in 1999, and (ii) 15,669 shares of Common Stock representing
the vesting of 15,669 performance shares in settlement of a special award of
performance shares (as adjusted for stock dividends and to reflect the
spin-off by the Company of Chicago Title Corporation in June 1998) made to
Mr. Burns in 1996. In each case, the payout in respect of the vested
performance shares was deferred pursuant to the terms of the special award
until Mr. Burns's retirement as an officer of the Company, and will be made
one-half in shares of Common Stock and one-half in cash (based upon the fair
market value of one share of Common Stock on the payout date for each
performance share).
(5) Includes 232 shares of Common Stock owned by Mr. Carmichael's wife. Mr.
Carmichael had no voting or investment power over these shares, and he
disclaims beneficial ownership of them.
(6) Includes 30,600 shares representing a restricted stock award and a
subsequent stock dividend in respect thereof, which are subject to Mr.
Hicks's continuing employment with the Company and the achievement of
certain performance goals, as more fully described below under "Employment
Arrangements."
(7) Includes 4,239 shares of Common Stock owned by Mr. Sismondo's wife. Mr.
Sismondo had no voting or investment power over these shares, and he
disclaims beneficial ownership of them.
As of February 25, 2004, all nominees named for election as a director,
directors and executive officers as a group (13 persons) beneficially owned
1,813,654 shares, or 24.1 percent, of the outstanding Common Stock, adjusted to
include shares of Common Stock issuable within 60 days upon exercise of stock
options held by such nominees, directors and executive officers. Such nominees,
directors and executive officers had sole voting and investment power with
respect to 1,131,762 shares, shared voting and/or investment power with respect
to 681,892 shares and no voting or investment power with respect to 5,231
shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company has determined that, except as set forth below, no person who
at any time during 2003 was a director, officer or beneficial owner of more than
10 percent of the Common Stock failed to file on a timely basis reports required
by Section 16(a) of the Securities Exchange Act of 1934, as amended, during
2003. Such determination is based solely upon the Company's review of Forms 3, 4
and 5, and written representations that no Form 5 was required, which were
submitted to it during or with respect to 2003. With regard to Ann Kirby Kirby
who, prior to her death in 1996, was believed by the Company to be a beneficial
owner of more than 10 percent of the Common Stock based on her Schedule 13D
statement filed with the Securities and Exchange Commission in 1982, the Company
had not received any reports from Mrs. Kirby regarding changes in her ownership
of Common Stock, and the representatives of the estate of Mrs. Kirby have
declined to supply information with respect to ownership of Common Stock by her
estate or beneficiaries; therefore, the Company does not know whether her estate
or any beneficiary of her
10
estate beneficially owned more than 10 percent of the Common Stock during 2003
nor whether any such person was required to file reports required by Section 16
(a). Mr. F.M. Kirby filed a Form 4 report in June 2003 reporting the
distribution to beneficiaries in early May 2003 of 2,204 shares of Common Stock
received as a stock dividend by trusts of which Mr. F.M. Kirby is the sole
trustee.
COMPENSATION OF DIRECTORS
Each director of the Company who is not an officer thereof receives an
annual retainer of $30,000, payable one-half in cash and one-half in shares of
Common Stock as more fully explained below, as well as $1,000 for each board
meeting attended in person and $500 for each conference telephone meeting
attended. In addition, the Chairman of the Executive Committee receives an
annual fee of $25,000, and each other member thereof who is not an officer of
the Company receives an annual fee of $7,500. The Chairman of the Audit
Committee receives an annual fee of $15,000, and each other member thereof
receives an annual fee of $11,000. The Chairman of the Audit Committee also
receives $1,000 for each audit committee meeting of a Company operating unit
which he attends. The Chairman of the Compensation Committee receives an annual
fee of $8,000, and each other member thereof receives an annual fee of $6,000.
The Chairman of the Nominating and Governance Committee receives an annual fee
of $6,500, and each other member thereof receives an annual fee of $5,000.
Pursuant to the Directors' Equity Compensation Plan, each director of the
Company who is not an employee of the Company or any of its subsidiaries
receives his retainer in the beginning of each year of his term for the
following twelve-months' service as a director, exclusive of any per meeting
fees, committee fees or expense reimbursements, payable one-half in shares of
Common Stock, based on the market value (as defined in the plan) of such shares
on the date of payment, and one-half in cash. Each eligible director received 88
shares of Common Stock on May 21, 2003.
Pursuant to the 2000 Directors' Stock Option Plan, each director of the
Company who is not an employee of the Company or any of its subsidiaries
receives annually, as of the first business day after the conclusion of each
Annual Meeting of Stockholders of the Company, an option to purchase 1,000
shares of Common Stock (subject to antidilution adjustments) at a price equal to
the fair market value (as defined in the plan) of such shares on the date of
grant. On April 28, 2003, each eligible director received an option to purchase
1,000 shares of Common Stock at a price of $170.545 per share.
Pursuant to the Non-Employee Directors' Retirement Plan, each person who
has served as a non-employee director of the Company after July 1, 1990 is
entitled to receive, after his retirement from the Board of Directors, an annual
retirement benefit payable in cash equal to the annual retainer payable to
directors of the Company at the time of his retirement. The benefit is paid from
the date of the director's retirement from the Board of Directors until the end
of a period equal to his length of service thereon or until his death, whichever
occurs sooner. To be entitled to this benefit, the director must have served as
such for at least five years and must have continued so to serve either until
the time he is required to retire by the Company's retirement
11
policy for directors or until he has attained age 70. The Company's retirement
policy for directors was adopted by Old Alleghany in 1979 and by the Company
upon its formation in 1986. The retirement policy provides that, except in
respect of directors serving when the policy was first adopted, the Board of
Directors shall not select a person as a nominee for the Board of Directors for
a term that would anticipate such nominee serving beyond his or her
seventy-second birthday. Messrs. Burns, Allan P. Kirby, Jr. and F.M. Kirby are
not subject to such retirement policy because each of them was a director of Old
Alleghany in 1979.
As Chairman of the Board of the Company, Mr. F.M. Kirby received in respect
of 2003 $342,121 in salary, $19,158 representing payments for reimbursement of
taxes and the reimbursement itself, and $78,881 representing (i) a savings
benefit of $52,031 credited pursuant to the Company's Deferred Compensation
Plan; and (ii) a benefit, valued at $26,850 pursuant to Securities and Exchange
Commission rules, of life insurance maintained by the Company on his behalf.
Such life insurance policy provides a death benefit to Mr. F.M. Kirby if he is
an employee at the time of his death equal to four times the amount of his
annual salary at January 1 of the year of his death.
As non-executive Chairman of the board of directors of the Company's
subsidiary World Minerals Inc. ("World Minerals"), Mr. Will was entitled to
receive an annual retainer of $40,000 as well as $600 for each board meeting or
conference telephone meeting attended. As a member of the Audit Committee of the
World Minerals board, Mr. Will was entitled to receive $500 for each committee
meeting attended. In 2003, Mr. Will received a total of $44,900 for services in
these capacities.
12
EXECUTIVE COMPENSATION
The information under this heading relates to the chief executive officer
and the four other most highly compensated executive officers of the Company
serving as executive officers at the end of 2003.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
------------------------------------ LONG-TERM
OTHER ANNUAL INCENTIVE ALL OTHER
NAME AND PRINCIPAL BONUS COMPENSATION PLAN PAYOUTS COMPENSATION
POSITION YEAR SALARY (1) (2) (3) (4)
------------------ ---- -------- ---------- ------------ ------------ ------------
John J. Burns, Jr.,.......................... 2003 $970,465 $ 741,763 $22,356 $1,115,924 $175,810
President and chief 2002 970,465 593,410 23,112 1,442,639 173,116
executive officer 2001 933,139 142,647 18,729 3,204,931(5) 168,652
Weston M. Hicks,............................. 2003 $624,000 $ 468,000 $ 4,743 $ -- $ 99,866
Executive Vice 2002 115,000 450,000 520 -- 625
President(6)
David B. Cuming,............................. 2003 $454,416 $ 259,356 $12,566 $ 460,788 $ 83,179
Senior Vice President 2002 436,938 251,151 15,124 595,807 82,048
2001 420,133 888,359 796,479 766,326 81,459
Robert M. Hart,.............................. 2003 $454,416 $ 268,149 $ 6,304 $ 460,788 $ 76,581
Senior Vice 2002 436,938 260,589 6,421 595,807 73,152
President, General 2001 420,133 1,092,488 884,790 766,326 73,264
Counsel and Secretary
Peter R. Sismondo,........................... 2003 $221,389 $ 101,485 $ 2,867 $ 236,940 $ 37,034
Vice President, Controller, 2002 212,874 95,666 2,894 306,221 35,358
Treasurer and Assistant 2001 204,687 452,829 355,551 393,613 36,097
Secretary
---------------
(1) These amounts represent (i) bonuses earned in respect of the relevant year
under the Company's Management Incentive Plan, which is a short-term
incentive plan designed to reward officers for achieving specified net
earnings per share and/or individual objectives; and (ii) for each of
Messrs. Cuming and Hart, an additional amount representing a special award
in 2001 of shares of Common Stock under the 1993 Plan, valued at $815,760
and $1,019,700, respectively.
(2) These amounts represent payments for reimbursement of taxes including
reimbursement of taxes incurred in respect of the special awards in 2001 of
shares of Common Stock under the 1993 Plan as described in Note (1) above,
and the reimbursement itself.
(3) These amounts represent payouts in settlement of performance shares awarded
under the 1993 Plan. Performance shares under the 1993 Plan entitle the
holder thereof to payouts of cash and/or Common Stock (in such proportion as
is determined by the Compensation Committee) up to a maximum amount equal to
the value of one share of Common Stock on the payout date for each
performance share, depending upon the average annual compound growth in the
Company's Earnings Per Share (as defined by the Compensation Committee
pursuant to the 1993 Plan) in a four-year award period commencing with the
year following that in which the performance shares were awarded; payouts
have generally been made one-half in cash and one-half in Common Stock.
13
(4) The 2003 amounts listed for Messrs. Burns, Hicks Cuming, Hart and Sismondo
include (i) savings benefits of $145,570, $93,450, $68,053, $68,053 and
$33,155, respectively, credited pursuant to the Company's Deferred
Compensation Plan; and (ii) benefits, valued at $26,220, $2,396, $11,106,
$4,508 and $912, respectively, pursuant to Securities and Exchange
Commission rules, of life insurance maintained by the Company on their
behalf. Such life insurance policies provide a death benefit to an executive
officer who is an employee at the time of his death equal to four times the
amount of such executive officer's annual salary at January 1 of the year of
his death. In the case of Mr. Burns, at his election, such death benefit
shall not exceed $3,000,000. The 2003 amounts listed for Messrs. Burns,
Hicks, Cuming, Hart and Sismondo also include compensation of $4,020,
$4,020, $4,020, $4,020 and $2,967, respectively, in respect of other
insurance coverage.
(5) This amount includes a payout of $1,593,802 in respect of one-half of a
special award of an aggregate 31,212 performance shares made to Mr. Burns
under the 1993 Plan in 1999, as adjusted for stock dividends. These
performance shares entitled Mr. Burns to a payout one-half in cash and
one-half in Common Stock up to a maximum amount equal to the value of one
share of Common Stock on the payout date for each performance share,
depending upon the stockholders' equity per share equaling or exceeding $234
(as adjusted for stock dividends) as at the end of any fiscal quarter ending
on or before June 30, 2002 and occurring while Mr. Burns was chief executive
officer of the Company. This goal was achieved in the quarter ending March
31, 2001. Payout of 7,803 of these performance shares was deferred pursuant
to the terms of the special award until Mr. Burns's retirement as an officer
of the Company.
(6) Mr. Hicks has been Executive Vice President of the Company since October 7,
2002.
LONG-TERM INCENTIVE PLAN -- AWARDS IN 2003
PERFORMANCE
OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OR MATURATION -----------------------------------------
NAME OTHER RIGHTS(1) OR PAYMENT THRESHOLD TARGET MAXIMUM
---- ---------------- ------------ --------- ------------- -------------
John J. Burns, Jr.... 7,275 2004-2007 $3,844.47 $1,537,789.50 $2,306,684.25
Weston M. Hicks...... 5,073 2004-2007 $2,680.82 $1,072,330.74 $1,608,496.11
David B. Cuming...... 3,064 2004-2007 $1,619.17 $ 647,668.32 $ 971,502.48
Robert M. Hart....... 3,064 2004-2007 $1,619.17 $ 647,668.32 $ 971,502.48
Peter R. Sismondo.... 1,575 2004-2007 $ 832.31 $ 332,923.50 $ 499,385.25
---------------
(1) These amounts represent performance shares awarded for the 2004-2007 award
period under the 2002 Plan. These performance shares entitle the holder
thereof to payouts of cash and/or Common Stock (in such proportion as is
determined by the Compensation Committee) up to a maximum amount equal to
the value of one and one-half shares of Common Stock on the payout date for
each performance share awarded. Maximum payouts will be made in respect of
these performance shares only if average annual compound growth in the
Company's Book Value Per Share (as defined by the Compensation Committee
pursuant to the 2002 Plan) equals or exceeds 12 percent in the award period,
measured from a base of $202.04. Target payouts will be made at 100 percent
if such growth equals 8 percent. No payouts will be made if such growth is
less than 4 percent; payouts for growth between 4 percent and 12 percent
will be determined by interpolation.
PENSION PLAN TABLE
The Company's Retirement Plan provides for designated employees, including
all of its current executive officers, retirement benefits in the form of an
annuity for the participant's life or, alternatively, actuarially equivalent
forms of benefits, including a lump sum. A participant must have either
completed five years of service with the Company or a subsidiary thereof or
attained age 55 while employed by the Company or a subsidiary thereof before he
or she is
14
vested in, and thus has a right to receive, any such benefits following his or
her termination of employment with the Company and all subsidiaries thereof.
The annual retirement benefit under the Company's Retirement Plan, if paid
in the form of a life annuity to a participant who retires on reaching age 65
with 15 or more years of service, is equal to 52.7625 percent of the
participant's average compensation, which is defined as the sum of (i) the
highest average annual base salary over a consecutive three-year period during
the last ten years or, if applicable, shorter period of employment, plus (ii)
one-half of the highest average annual cash bonus over a consecutive five-year
period during the last ten years of employment; however, such benefit is reduced
by 33.5 percent of his unreduced primary Social Security benefit and by 67
percent of his accrued benefit under a previously terminated retirement plan of
the Company. (Annual base salary is the amount that would be included in the
salary column of the Summary Compensation Table for the relevant years, and
annual bonus is the amount of the cash bonus earned under the Company's
Management Incentive Plan that would be included in the bonus column of the
Summary Compensation Table for the relevant years.) In the event a participant
becomes totally disabled prior to retirement, such participant's annual base
salary shall equal his annual base salary at the time of disability, and such
participant's average annual bonus shall be based on the average over the five
consecutive years (or lesser period of employment) prior to disability, each
adjusted annually for inflation; such participant's period of disability will be
treated as continued employment for all purposes under the Retirement Plan,
including determining his years of service.
Since the funds accumulated under the Company's Retirement Plan to provide
for each participant's annual retirement benefit are currently taxable to each
participant, the plan provides for the payment to the appropriate tax
authorities as withholding tax on behalf of each participant of an amount equal
to the income and employment tax liabilities imposed upon the participant by
reason of his participation in the plan. As a result, benefits payable in the
form of a lump sum are not taxable at the time of payment. Benefits payable in
the form of an annuity are taxable in part; the Retirement Plan provides that
such benefits will be increased to offset the impact of any such tax liability,
and the estimated benefits set forth in the table below include an estimate of
such increase.
A participant may retire as early as age 55, but the benefit payable at
that time will be reduced to reflect the commencement of benefit payments prior
to age 65. The benefit payable to a participant who retires after age 65 is
increased to reflect salary increases and additional years of service through
the actual date of retirement and the decreased period over which the normal
retirement benefit will be paid. The Retirement Plan also provides that a
participant over age 65 who is still in the employ of the Company may elect
prior to the actual date of retirement to receive the benefits to which he would
have been entitled had he retired on the date of such election. Pursuant to this
provision, Mr. Burns and Mr. Cuming each elected in February 2001 to receive
their then accrued benefits under the Retirement Plan. Any additional benefits
which accrue prior to their actual date of retirement will be offset by the then
equivalent value of the benefits previously distributed. As a result, it is not
likely that Messrs. Burns or Cuming will receive any additional benefits from
the Retirement Plan.
The following table shows the estimated annual retirement benefit payable
under the Company's Retirement Plan (without giving effect to the Social
Security offset or the offset for
15
benefits accrued under the previously terminated retirement plan) to a
participant who, upon retirement on December 31, 2003 at age 65, had achieved
the average compensation and years of service indicated. The amounts shown
assume payment in the form of a straight life annuity.
YEARS OF SERVICE
AVERAGE --------------------------------
COMPENSATION 5 10 15 OR MORE
------------ -------- -------- ----------
$ 125,000 ......................... $ 26,894 $ 53,788 $ 80,682
150,000 ......................... 32,273 64,546 96,819
175,000 ......................... 37,652 75,303 112,955
200,000 ......................... 43,031 86,061 129,091
225,000 ......................... 48,410 96,819 145,228
250,000 ......................... 53,789 107,576 161,364
300,000 ......................... 64,547 129,091 193,637
400,000 ......................... 86,062 172,122 258,183
450,000 ......................... 96,820 193,637 290,456
500,000 ......................... 107,578 215,152 322,729
600,000 ......................... 129,093 258,183 387,274
700,000 ......................... 150,609 301,213 451,820
800,000 ......................... 172,124 344,244 516,366
900,000 ......................... 193,640 387,279 580,919
1,000,000 ......................... 215,155 430,310 645,466
1,100,000 ......................... 236,671 473,341 710,012
1,200,000 ......................... 258,186 516,373 774,559
1,300,000 ......................... 279,702 559,404 839,105
1,400,000 ......................... 301,217 602,435 903,652
1,500,000 ......................... 322,733 645,466 968,199
1,600,000 ......................... 344,248 688,497 1,032,745
As of December 31, 2003, the credited years of service for Messrs. Hart and
Sismondo were 14 and 16 years, respectively. The average compensation of each of
Messrs. Hart and Sismondo for purposes of the Retirement Plan was $535,252 and
$251,383, respectively. As of December 31, 2003, Mr. Hicks had one year of
vesting service toward the five years of vesting service necessary to become
100% vested in his benefits under the Retirement Plan.
EMPLOYMENT ARRANGEMENTS
On October 7, 2002, the Company entered into an employment agreement with
Mr. Hicks, pursuant to which Mr. Hicks has agreed to serve as Executive Vice
President of the Company. Under the terms of Mr. Hicks's employment agreement,
his initial base salary was at an annual rate of $600,000, which is reviewed
annually commencing December 2002 and for calendar year 2004 will be at an
annual rate of not less than $700,000. He was paid an annual bonus of $450,000
for 2002 and was entitled to participate in the Management Incentive Plan for
2003 with a target bonus opportunity of 50 percent of his annual base salary. In
addition, Mr. Hicks received an award of 5,201 performance shares (as adjusted
for stock dividends) under the 2002 Plan for the four-year award period ending
December 31, 2006, which entitle him to a payout of cash and/or Common Stock (in
such proportion as is determined by the Compensation Committee) up to a maximum
amount equal to the value of one and one-half shares of Common Stock on the
payout date for each performance share awarded. A maximum payout will be made in
respect of these performance shares only if average annual compound growth in
the Company's Book Value Per Share (as defined by the Compensation Committee
pursuant to the 2002 Plan) equals or exceeds 12 percent in the award period,
measured from a base of $186.01
16
(as adjusted for stock dividends). A target payout will be made at 100 percent
if such growth equals 8 percent. No payout will be made if such growth is less
than 4 percent; payouts for growth between 4 percent and 12 percent will be
determined by interpolation. Mr. Hicks also received an award of 3,231.7
performance shares (as adjusted for stock dividends) under the 2002 Plan for the
three-year award period ending December 31, 2005, which entitle him to a payout
of cash and/or Common Stock (in such proportion as is determined by the
Compensation Committee) up to a maximum amount equal to the value of one share
of Common Stock on the payout date for each performance share awarded. A maximum
payout will be made in respect of these performance shares only if average
annual compound growth in the Company's Earnings Per Share (as defined by the
Compensation Committee pursuant to the 2002 Plan) equals or exceeds 12 percent
in the award period, measured from a base of $10.24 (as adjusted for stock
dividends). No payout will be made if such growth is 8 percent or less; a payout
for growth between 8 percent and 12 percent will be determined by interpolation.
If Mr. Hicks is terminated other than for Cause or Total Disability (as defined
in the employment agreement), or if he is not elected chief executive officer of
the Company by December 31, 2005 and a decision is made by Mr. Hicks or the
Company to terminate his employment, the Company will continue to pay his base
salary after such termination until such payments total $1 million on a gross
basis. The employment agreement also provides that Mr. Hicks is eligible to
participate in the Company's Retirement Plan and, effective January 1, 2003, the
Company's Deferred Compensation Plan, as well as all other employee benefit
plans, programs, practices or other arrangements in which other senior
executives of the Company are generally eligible to participate from time to
time.
Pursuant to the terms of his employment agreement, Mr. Hicks and the
Company entered into a restricted stock award agreement dated as of October 7,
2002. Under this award agreement, Mr. Hicks received a restricted stock award of
30,600 shares of Common Stock (which includes shares received in a subsequent
stock dividend which are similarly restricted) under the 2002 Plan, which will
vest (i) if the Company achieves average annual compound growth in Stockholders'
Equity Per Share (as defined in the award agreement) equal to 10 percent or more
as measured over a calendar year period commencing January 1, 2003 and ending on
December 31, 2006, 2007, 2008 or 2009, or (ii) if the performance goal set forth
in clause (i) above has not been achieved as of December 31, 2009, when the
Company achieves average annual compound growth in Stockholders' Equity Per
share equal to 7 percent or more as measured over a calendar year period
commencing January 1, 2003 and ending on December 31, 2010, 2011 or 2012. If the
performance goals are not achieved as of December 31, 2012, Mr. Hicks will
forfeit all of the restricted shares. If Mr. Hicks's employment with the Company
is terminated for any reason prior to the occurrence of any vesting date, he
shall forfeit his interest in any restricted shares that have not yet vested;
however, if the Company terminates Mr. Hicks's employment after December 31,
2004 other than for Cause or Total Disability (as defined in the award
agreement), and the performance goal set forth in clause (ii) above has been
satisfied in all respects except for the passage of the required period of time,
that number of restricted shares equal to 30,000 multiplied by a fraction, the
numerator of which is the number of full calendar years beginning January 1,
2003 and ending on or before the date of such termination, and the denominator
of which is ten, will vest. In the event that Mr. Hicks is elected chief
executive officer of the Company, he will receive a restricted stock award of
25,000 shares of Common Stock under the 2002 Plan which
17
will have comparable terms and conditions as the first restricted stock award
except that the performance measurement periods will commence at the time of the
second restricted stock award.
Pursuant to the terms of his employment agreement, Mr. Hicks and the
Company entered into a restricted stock unit matching grant agreement dated as
of October 7, 2002. Under this matching grant agreement, Mr. Hicks received a
restricted stock unit matching grant under the 2002 Plan of two restricted stock
units for every share of Common Stock purchased by Mr. Hicks or received by him
pursuant to stock dividends thereon (the "Owned Shares") on or before September
30, 2003 up to a maximum of 30,000 restricted stock units in respect of up to a
maximum of 15,000 Owned Shares (in each case subject to increase to reflect any
stock dividend paid in 2003). On August 25, 2003, Mr. Hicks purchased 10,000
shares of Common Stock and, accordingly, was credited with 20,000 restricted
stock units. The restricted stock units are notional units of measurement
denominated in shares of Common Stock and entitle Mr. Hicks to payment on
account of such restricted stock units in an amount equal to the Fair Market
Value (as defined in the matching grant agreement) on the payment date of a
number of shares of Common Stock equal to the number of restricted stock units
to which Mr. Hicks is entitled to payment. All of the restricted stock units
shall vest on October 7, 2012. If Mr. Hicks is terminated without Cause or by
reason of his death or Total Disability (as such terms are defined in the
matching grant agreement) prior to October 7, 2012, a pro rata portion of the
restricted stock units credited to him shall vest and become nonforfeitable on
the basis of 10 percent of such account for each full year of employment with
the Company measured from October 7, 2002. Mr. Hicks shall have maintained
unencumbered beneficial ownership of the Owned Shares continuously throughout
the period commencing with the initial purchase of Owned Shares and ending
October 7, 2012 or the earlier date of a pro rata payout. To the extent that he
fails to do so, he will forfeit two restricted stock units for each Owned Share
with respect to which he has not maintained unencumbered beneficial ownership
for the required period of time. If, prior to October 7, 2012, Mr. Hicks
voluntarily terminates his employment or the Company terminates Mr. Hicks's
employment for Cause, all of the restricted units shall be forfeited. Mr. Hicks
may not transfer the restricted stock units and has no voting or other rights in
respect of the restricted stock units.
18
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is currently composed of the three independent
directors whose names appear at the end of this report.
An important objective of the Compensation Committee is to ensure that the
compensation practices of the Company are competitive and effectively designed
to attract, retain and motivate highly-qualified personnel. In performing its
functions, the Compensation Committee in recent years has obtained and used
information and advice furnished by a nationally recognized compensation
consulting firm.
Compensation paid to the executive officers of the Company in 2001, 2002
and 2003 consisted chiefly of salary, cash bonuses under the Management
Incentive Plan which in large part were tied to the financial results of the
Company, and payouts of cash and Common Stock under the 1993 Plan which were
tied both to the price of the Common Stock and to the financial results of the
Company. These compensation practices help to link the interests of the
Company's executive officers with the interests of the Company's stockholders.
Annual Compensation
Salary adjustments for executive officers are generally made annually and
are based on salaries for the prior year, executive salary movements nationally
and in the New York market, individual performance and internal comparability
considerations.
Annual cash bonuses are paid to executive officers under the Management
Incentive Plan. This plan is designed to reward officers for the achievement of
specified financial and/or individual objectives.
Bonus opportunities for 2003 were adjusted from the prior year at the rate
of 4 percent (which was in proportion to changes in salaries). Maximum bonus
opportunities for executive officers of the Company as a percentage of salaries
for 2003 ranged from 76 percent of salary for Mr. Burns to 48 percent of salary
for the most junior executive officer of the Company. Target bonus opportunities
are equal to two-thirds of the maximum bonus opportunity and are believed to
fall at or below the median of prevailing practices in a broad cross-section of
American industry reflecting the Company's policy of emphasizing long-term
financial performance and long-term incentive compensation. Mr. Hicks's target
bonus opportunity for 2003 was set at 50 percent of his annual base salary
pursuant to his employment agreement with the Company.
For 2003, the portion of the bonus opportunities which depended on
financial objectives ranged from 80 percent of Mr. Burns's bonus opportunity to
40 percent of the bonus opportunity of the most junior executive officer of the
Company. The financial objective under the Management Incentive Plan was the
achievement by the Company of a specified level of net earnings per share, which
was based on the planned net earnings per share for the year as approved by the
Board of Directors and included in the Alleghany Corporation Strategic Plan
2003-2007. Target bonus opportunities were to be earned if plan net earnings per
share were achieved, and maximum bonus opportunities were to be earned at 110
percent of plan. For any amounts to be earned, net earnings per share were
required to exceed 80 percent of plan, and growth in book value per share was
required to be at least 4 percent. The Company's 2003 net earnings per share
exceeded 110 percent of the plan for 2003 and growth in book value per
19
share exceeded 4 percent; therefore, the maximum amount was earned on that
portion of the bonus opportunities that was dependent on financial objectives.
The remainder of the bonus opportunities of the executive officers of the
Company for 2003 was based on achievement of individual objectives. Individual
objectives for the executive officers of the Company (other than Mr. Burns) were
determined, and the performance of such officers was assessed, by the chief
executive officer. Individual objectives for Mr. Burns were determined, and his
performance was assessed, by the Board of Directors upon the recommendation of
the Compensation Committee, which received the recommendation of the Chairman of
the Board with respect thereto. The maximum amount was authorized in respect of
Mr. Burns's individual objectives for 2003 because 100 percent of such
objectives were achieved.
Long-Term Incentive Compensation
In addition to annual compensation, the Company provides long-term
incentive compensation to its executive officers pursuant to awards under the
2002 Plan. The 2002 Plan provides for long-term incentives based upon objective,
quantifiable measures of the Company's performance over a period of time.
The performance shares awarded in 2003 entitle the holder thereof to
payouts in cash and/or Common Stock (in such proportion as is determined by the
Compensation Committee) up to a maximum amount equal to the value of one and
one-half shares of Common Stock on the payout date for each performance share
awarded. Maximum payouts with respect to such performance shares will be made
only if average annual compound growth in the Company's Book Value Per Share (as
defined by the Compensation Committee pursuant to the 2002 Plan) equals or
exceeds 12 percent as measured from a specified base in the four-year award
period commencing with the year following that in which the performance shares
were awarded, target payouts will be made at 100 percent if such growth equals 8
percent, and no payouts will be made if such growth is less than 4 percent;
payouts for growth between 4 percent and 12 percent will be determined by
interpolation. This performance scale was developed with the advice of the
nationally recognized compensation consulting firm referred to above; the target
was determined to represent superior performance based on the current economic
outlook. The specified base Book Value Per Share for the performance shares
granted in 2003 was determined by reference to the estimated book value for
year-end 2003.
In determining the number of performance shares awarded each year, the
Compensation Committee has sought to achieve reasonable continuity in awards
from prior years. Also, the Compensation Committee considers changes in salaries
and the price of Common Stock. The number of performance shares awarded to an
executive officer in 2003 for the 2004-2007 award period was determined by
adjusting the prior year's award to reflect the increase in his salary from 2003
to 2004 and to reflect the movements in the price of the Common Stock.
In the case of the Company's most senior executive officers, long-term
incentive compensation opportunities are believed to be close to the prevailing
practices in a broad cross section of American industry; in the case of the
Company's most junior executive officer, such opportunity is believed to be
somewhat more generous than such prevailing practices. The awards reflect the
Company's policy of emphasizing long-term financial performance and
20
long-term incentive compensation opportunities over short-term results and
short-term incentive compensation opportunities.
Section 162(m) of the Internal Revenue Code of 1986
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), disallows a deduction to the Company for any compensation paid to a
"covered employee" in excess of $1 million per year, subject to certain
exceptions. In general, "covered employees" include the chief executive officer
and the four other most highly compensated executive officers of the Company who
are in the employ of the Company and are officers at the end of the tax year.
Among other exceptions, the deduction limit does not apply to compensation that
meets the specified requirements for "performance-based compensation." In
general, those requirements include the establishment of objective performance
goals for the payment of such compensation by a committee of the Board of
Directors composed solely of two or more outside directors, stockholder approval
of the material terms of such compensation prior to payment, and certification
by the committee that the performance goals for the payment of such compensation
have been achieved. While the Compensation Committee believes that the Company
should seek to obtain maximum deductibility of compensation paid to executive
officers, the Compensation Committee also believes that the interests of the
Company and its stockholders are best served by assuring that appropriate
compensation arrangements are established to retain and incentivize executive
officers.
The Compensation Committee has endeavored, to the extent it deems
consistent with the best interests of the Company and its stockholders, to cause
awards of long-term incentive compensation to qualify as "performance-based
compensation" under Section 162(m). To that end, the 2002 Plan was submitted to
and approved by the stockholders of the Company at the 2002 Annual Meeting, so
that compensation payable pursuant to certain long-term incentive awards may
qualify for deductibility under Section 162(m). All of the performance shares
awarded in 2003 to Messrs. Burns, Hicks, Cuming, Hart and Sismondo described in
Note (1) to the table relating to long-term incentive awards are intended to
qualify as "performance-based compensation" for purposes of Section 162(m).
The Compensation Committee does not currently intend to structure the
annual cash bonuses under the Management Incentive Plan to comply with the
"performance-based compensation" rules of Section 162(m). Such bonuses do not
meet the requirement of Section 162(m) that they be payable "solely on account
of the attainment of one or more preestablished, objective performance goals,"
since in most cases such bonuses also have subjective performance goals. In
addition, the material terms of bonuses under the Management Incentive Plan were
not submitted for the approval of the stockholders of the Company, as required
by Section 162(m). The Compensation Committee believes the annual cash bonuses,
as currently structured, best serve the interests of the Company and its
stockholders by allowing the Company to recognize the full range of an executive
officer's contribution.
With respect to other compensation that has been or may be paid to
executive officers of the Company, the Compensation Committee may consider the
requirements of Section 162(m) and make determinations regarding compliance with
Section 162(m) based upon the best interests of the Company and its
stockholders.
21
Other Benefits
The Company also provides to its executive officers other benefits, such as
retirement income, death benefits and savings credits, including those described
elsewhere in this proxy statement. The amounts of these benefits generally are
tied directly to salaries, as variously defined in the relevant plans. Such
additional benefits are believed to be typical of the benefits provided by other
public companies to their executives.
Dan R. Carmichael
William K. Lavin
Roger Noall
Compensation Committee
of the Board of Directors
AUDIT COMMITTEE REPORT
The Audit Committee is currently composed of four independent directors
whose names appear at the end of this report.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent auditors are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and for
issuing a report thereon. The Audit Committee's responsibility is to monitor and
review these processes and the activities of the Company's independent auditors.
The Audit Committee members are not acting as professional accountants or
auditors, and their responsibilities are not intended to duplicate or certify
the activities of management and the independent auditors or to certify the
independence of the auditors under applicable rules.
In this context, the Audit Committee has reviewed and discussed the
Company's audited financial statements as of December 31, 2003 and for the
fiscal year then ended, including management's discussion and analysis of
financial condition and results of operation and critical accounting policies,
with management and KPMG LLP, the Company's independent auditors. The Audit
Committee has discussed with KPMG LLP the matters required to be discussed by
Statement on Auditing Standards No. 61, "Communication with Audit Committees,"
as amended, as issued by the Auditing Standards Board of the American Institute
of Certified Public Accountants.
KPMG LLP reported to the Audit Committee regarding the critical accounting
policies and practices and the estimates and assumptions used by management in
the preparation of the audited financial statements as of December 31, 2003 and
for the fiscal year then ended, all alternative treatments of financial
information within generally accepted accounting principles that have been
discussed with management, the ramifications of use of such alternative
treatments and the treatment preferred by KPMG LLP.
22
KPMG LLP provided a report to the Audit Committee describing KPMG LLP's
internal quality-control procedures and related matters. KPMG LLP also provided
to the Audit Committee the written disclosures and the letter required by
Standard No. 1, "Independence Discussions with Audit Committees," as adopted by
the Independence Standards Board, and the Audit Committee discussed with KPMG
LLP its independence. When considering KPMG LLP's independence, the Audit
Committee considered, among other matters, whether KPMG LLP's provision of
non-audit services to the Company is compatible with maintaining the
independence of KPMG LLP.
Based on the reviews and discussions with management and KPMG LLP referred
to above, the Audit Committee has recommended to the Board of Directors that the
audited financial statements as of December 31, 2003 and for the fiscal year
then ended be included in the Company's Annual Report on Form 10-K for such
fiscal year. The Audit Committee also selected KPMG LLP as independent auditors
of the Company for the year 2004, subject to stockholder ratification.
William K. Lavin
Rex D. Adams
Dan R. Carmichael
Thomas S. Johnson
Audit Committee
of the Board of Directors
23
PERFORMANCE GRAPH
The following graph compares for the years 1999-2003 the cumulative total
stockholder return on the Common Stock, the cumulative total return on the
Standard & Poor's 500 Stock Index (the "S&P 500") and the cumulative total
return on the common stock of a group of "peer" issuers. The graph shows the
value at the end of each such year of $100 invested as of January 1, 1999 in the
Common Stock, the S&P 500 and the common stock of a group of "peer" issuers.
In 2003, the Company was a moderately diversified business enterprise with
revenues generated primarily by its operations in property and casualty
insurance and industrial minerals.
"Peer" issuers for the Company are publicly held, diversified financial
services companies which have been selected for their similarities to the
Company in terms of lines of business, recent history of acquisitions and
dispositions, holding company structure and/or concentration of ownership,
although any "peer" issuer, in the Company's view, would be significantly
different from other "peer" issuers and from the Company due to the individual
character of its business. The Company has constructed a group of "peer" issuers
which, in addition to the Company, consists of American Financial Group, Inc.,
Loews Corporation, Old Republic International Corporation and Leucadia National
Corporation (collectively, the "Peer Group").
[Line Graph]
ALLEGHANY S&P 500 PEER GROUP
--------- ---------- ----------
1999.................................... $100.71 $121.04 $ 70.90
2000.................................... $113.80 $110.02 $117.49
2001.................................... $108.70 $ 96.95 $117.11
2002.................................... $102.27 $ 75.52 $107.09
2003.................................... $130.76 $ 97.18 $130.45
24
The foregoing performance graph is based on the following assumptions: (i)
cash dividends are reinvested on the ex-dividend date in respect of such
dividend; (ii) the two-percent stock dividends paid by the Company in each of
the years 1999 through 2003 are included in the cumulative total stockholder
return on the Common Stock; and (iii) total returns on the common stock of
"peer" issuers are weighted by stock market capitalization at the beginning of
each year.
2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee has selected KPMG LLP, independent certified public
accountants, as independent auditors for the Company for the year 2004. A
resolution will be submitted to stockholders at the Annual Meeting for
ratification of such selection. Although ratification by stockholders is not a
prerequisite to the ability of the Audit Committee to select KPMG LLP as the
Company's independent auditors, the Company believes such ratification to be
desirable. If the stockholders do not ratify the selection of KPMG LLP, the
selection of independent auditors will be reconsidered by the Audit Committee;
however, the Audit Committee may select KPMG LLP notwithstanding the failure of
the stockholders to ratify its selection.
The following table summarizes the fees for professional audit services
rendered by KPMG LLP for the audit of the Company's annual financial statements
for the years 2003 and 2002, and fees billed for other services rendered by KPMG
LLP for the years ended December 31, 2003 and 2002:
2003 2002
---------- ----------
Audit Fees................................. $2,157,900 $1,384,300
Audit-Related Fees......................... 282,800 302,700
Tax Fees................................... 36,300 106,400
All Other Fees............................. -- --
---------- ----------
Total...................................... $2,477,000 $1,793,400
The amounts shown for "Audit Fees" represent the aggregate fees for
professional services rendered by KPMG LLP for the audit of the Company's annual
financial statements for each of the last two fiscal years, and the reviews of
the Company's financial statements included in its Quarterly Reports on Form
10-Q, the consents for registration statements and the services provided in
connection with statutory and regulatory filings during each of the last two
fiscal years. The amounts shown for "Audit-Related Fees" represent the aggregate
fees billed in each of the last two fiscal years by KPMG LLP for assurance and
related services that are reasonably related to the performance of the audit or
review of the Company's financial statements and that are not reported under
"Audit Fees." These services include due diligence assistance in connection with
acquisitions, consultations on accounting and audit matters, the verification of
certain incentive compensation calculations requested by the Board of Directors,
and audit work performed on certain of the Company's benefit plans. The amounts
shown for "Tax Fees" represent the aggregate fees billed in each of the last two
fiscal years by KPMG LLP for tax compliance and review regarding the accounting
treatment of various tax matters.
Audit and permissible non-audit services to be provided by KPMG LLP to the
Company must be pre-approved by the Audit Committee or, between meetings of the
Audit Committee, by its Chairman pursuant to authority delegated by the Audit
Committee. The Chairman reports all pre-approval decisions made by him at the
next meeting of the Audit Committee, and he has
25
undertaken to confer with the Audit Committee to the extent that any engagement
for which his pre-approval is sought is expected to generate fees for KPMG LLP
in excess of $100,000.
When considering KPMG LLP's independence, the Audit Committee considered,
among other matters, whether KPMG LLP's provision of non-audit services to the
Company is compatible with maintaining the independence of KPMG LLP.
The Board of Directors recommends a vote "FOR" this resolution. Proxies
solicited by the Board of Directors will be so voted unless stockholders specify
a contrary vote. The resolution may be adopted by a majority of the votes cast
with respect thereto.
KPMG LLP was Old Alleghany's independent auditors from 1947 and has been
the Company's independent auditors since its incorporation in November 1984.
It is expected that a representative of KPMG LLP will be present at the
Annual Meeting, will have an opportunity to make a statement if he desires to do
so and will be available to respond to appropriate questions.
3. ALL OTHER MATTERS THAT MAY COME BEFORE
THE 2004 ANNUAL MEETING
As of the date of this statement, the Board of Directors knows of no
business that will be presented for consideration at the 2004 Annual Meeting
other than that referred to above. As to other business, if any, that may come
before the 2004 Annual Meeting, proxies in the enclosed form will be voted in
accordance with the judgment of the person or persons voting the proxies.
STOCKHOLDER NOMINATIONS AND PROPOSALS
The Nominating and Governance Committee will receive at any time and will
consider from time to time suggestions from stockholders as to persons to be
nominated by the Board of Directors for election thereto by the stockholders or
to be chosen by the Board of Directors to fill newly created directorships or
vacancies on the Board of Directors. Any such stockholder recommendation should
be submitted in writing to the Nominating and Governance Committee in care of
the Secretary of the Company at the Company's principal executive offices.
The Board of Directors seeks members with diverse business and professional
backgrounds and outstanding integrity, judgment and such other skills and
experience as will enhance the Board's ability to best serve the interests of
the Company. The Board of Directors has not approved any criteria for nominees
for director and believes that establishing such criteria is best left to an
evaluation of the needs of the Company at the time that a nomination is to be
considered. Similarly, the Nominating and Governance Committee has not
identified specific, minimum qualifications for director nominees or any
specific qualities or skills that it believes are necessary for one or more of
the Company's directors to possess. In view of the infrequency of vacancies on
the Board of Directors, the Nominating and Governance Committee does not have an
established process for identifying and evaluating nominees for director.
The Company's By-laws require that there be furnished to the Company
written notice with respect to the nomination of a person for election as a
director (other than a person
26
nominated by or at the direction of the Board of Directors), as well as the
submission of a proposal (other than a proposal submitted by or at the direction
of the Board of Directors), at a meeting of stockholders. In order for any such
nomination or submission to be proper, the notice must contain certain
information concerning the nominating or proposing stockholder and the nominee
or the proposal, as the case may be, and must be furnished to the Company
generally not less than 30 days prior to the meeting. A copy of the applicable
By-law provisions may be obtained, without charge, upon written request to the
Secretary of the Company at the Company's principal executive offices.
In accordance with the rules of the Securities and Exchange Commission, any
proposal of a stockholder intended to be presented at the Company's 2005 Annual
Meeting of Stockholders must be received by the Secretary of the Company by
November 24, 2004 in order for the proposal to be considered for inclusion in
the Company's notice of meeting, proxy statement and proxy relating to the 2005
Annual Meeting, scheduled for Friday, April 22, 2005.
ADDITIONAL INFORMATION
At any time prior to their being voted, the enclosed proxies are revocable
by written notice to the Secretary of the Company or by appearance at the 2004
Annual Meeting and voting in person. A quorum comprising the holders of a
majority of the outstanding shares of Common Stock on the record date must be
present in person or represented by proxy for the transaction of business at the
2004 Annual Meeting.
Solicitation of proxies will be made by mail, telephone and, to the extent
necessary, by telegrams and personal interviews. Expenses in connection with the
solicitation of proxies will be borne by the Company. Brokers, custodians and
fiduciaries will be requested to transmit proxy material to the beneficial
owners of Common Stock held of record by such persons, at the expense of the
Company. The Company has retained Georgeson Shareholder Communications Inc. to
aid in the solicitation of proxies, and for its services the Company expects to
pay fees of approximately $9,000 plus expenses.
By order of the Board of Directors
ROBERT M. HART
Senior Vice President,
General Counsel
and Secretary
March 8, 2004
27
APPENDIX A
AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
ALLEGHANY CORPORATION
I. FUNCTION:
The Audit Committee is charged with assisting the Board of Directors in its
oversight of the integrity of the Corporation's financial statements, the
Corporation's compliance with legal and regulatory requirements, the
qualifications, performance and independence of the Corporation's
independent auditors and the performance of the Corporation's internal
auditors; and producing a report as required by the Securities and Exchange
Commission to be included in the Corporation's annual proxy statement.
II. ORGANIZATION:
A. The Audit Committee shall be composed of three or more directors
appointed by the Board of Directors, each of whom shall be
independent, as determined by the Board of Directors consistent with
the requirements of the Securities Exchange Act of 1934, as amended,
the rules adopted thereunder by the Securities and Exchange Commission
and the listing standards of the New York Stock Exchange. All members
of the Committee shall be financially literate and at least one member
shall have accounting or related financial management expertise, as
such qualifications are interpreted by the Board of Directors in its
business judgment. In determining the qualifications of any member of
the Committee, the Board of Directors shall consider whether such
member serves on the audit committees of more than three public
companies and determine that such simultaneous service would not
impair the ability of such member to effectively serve on the
Committee. Subject to the foregoing, the Board may remove and replace
members of the Committee in its discretion. The Board shall designate
one of the members as Chairman.
B. The Committee shall meet at such times and upon such notice as it may
determine.
C. A majority of the members then in office shall constitute a quorum.
The act of a majority of the members present at a meeting at which a
quorum is present shall be the act of the Committee.
D. The Committee shall have the authority to delegate its
responsibilities to a subcommittee of its members.
III. RESPONSIBILITY AND AUTHORITY:
A. The independent auditors of the Corporation and its subsidiaries shall
report directly to the Committee, and the Committee shall be directly
responsible for the appointment, compensation, retention and oversight
of the work of the independent auditors (including resolution of
disagreements between management and the independent
auditors regarding financial reporting) for the purpose of preparing
or issuing an audit report or performing other audit, review or attest
services for the Corporation.
B. The Committee shall approve in advance all audit services to be
provided by the independent auditors; and shall establish policies and
procedures for the engagement of the independent auditors to provide
audit and permissible non-audit services, which shall include
pre-approval of all permissible non-audit services to be provided by
the independent auditors.
C. The Committee shall, at least annually, obtain and review a report by
the independent auditors describing: the independent auditors'
internal quality-control procedures; any material issues raised by the
most recent internal quality-control review, or peer review, of the
independent auditors, or by any inquiry or investigation by
governmental or professional authorities within the preceding five
years respecting one or more independent audits carried out by the
independent auditors; any steps taken to deal with any such issues;
and (to assess the independent auditor's independence) all
relationships between the independent auditors and the Corporation.
After reviewing such report, the Committee shall evaluate the
qualifications, performance and independence of the independent
auditors and the lead partner of such independent auditors, taking
into account the opinions of management and internal auditors and
considering whether there should be a regular rotation of the
independent auditors. The Committee shall present its conclusions with
respect to the independent auditors to the Board.
D. The Committee shall review and discuss
(1) with management and the independent auditors, the audited
consolidated annual financial statements of the Corporation and
its subsidiaries, including management's discussion and analysis
of financial condition and results of operation and critical
accounting policies, to be incorporated in the Corporation's
Annual Report on Form 10-K to the Securities and Exchange
Commission, and any such review by the Committee thereof shall
include a determination whether to recommend such incorporation;
(2) with management and the independent auditors, the unaudited
consolidated quarterly financial statements of the Corporation and
its subsidiaries, including management's discussion and analysis
thereof, to be included in the Corporation's Quarterly Reports on
Form 10-Q to the Securities and Exchange Commission;
(3) the Corporation's earnings releases, as well as financial
information and earnings guidance provided to analysts and rating
agencies (provided that this may be done generally and that each
earnings release or guidance need not be discussed in advance);
(4) the Corporation's policies with respect to risk assessment and
risk management;
2
(5) the adequacy and effectiveness of the Corporation's internal
controls, including any significant deficiencies in internal
controls and significant changes in such controls reported to the
Committee by the independent auditors or management;
(6) the adequacy and effectiveness of the Corporation's disclosure
controls and procedures and management reports thereon; and
(7) the quality, as well as the acceptability, of the Corporation's
accounting policies, including the Corporation's critical
accounting policies and practices and the estimates and
assumptions used by management in the preparation of the
Corporation's financial statements, and in connection therewith
shall discuss with the independent auditors all alternative
treatments of financial information within generally accepted
accounting principles that have been discussed with management,
the ramifications of use of such alternative treatments and the
treatment preferred by the independent auditors.
E. The Committee shall oversee the Corporation's compliance systems with
respect to legal and regulatory requirements and compliance with the
Corporation's codes of conduct.
F. The Committee shall meet separately, periodically, with management,
the principal internal auditor and the independent auditors.
G. The Committee shall review with the independent auditors any audit
problems or difficulties and management's response.
H. The Committee shall set clear hiring policies for employees or former
employees of the independent auditors.
I. The internal auditors of the Corporation shall report directly to the
Committee and the Committee shall oversee the compensation, activities
and performance of the Corporation's internal auditors.
J. The Committee shall establish procedures for the receipt, retention
and treatment of complaints received by the Corporation regarding
accounting, internal accounting controls or auditing matters, and the
confidential, anonymous submission by employees of the Corporation of
concerns regarding questionable accounting or auditing matters.
K. The Committee shall produce a report as required by the Securities and
Exchange Commission to be included in the Corporation's annual proxy
statement.
L. The Committee may engage independent counsel and other advisers, as it
determines necessary to carry out its duties.
M. The Committee shall annually evaluate its performance, the
qualifications of its members and the adequacy of this Charter and
report thereon to the Board.
3
N. The Committee shall keep regular minutes of its proceedings and shall
report regularly to the Board of Directors.
O. To the extent that the Committee in its sole discretion deems feasible
and desirable, it may (but shall not be required to) review such other
aspects of the affairs of the Corporation and its subsidiaries as it
deems appropriate, including but not limited to compliance by
management with the policies and decisions of the Board of Directors
or any committee thereof, and may make reports and recommendations to
the Board with respect thereto.
IV. LIMITS ON RESPONSIBILITY
Management is responsible for the Corporation's internal controls and the
financial reporting process. The independent auditors are responsible for
performing an independent audit of the Corporation's consolidated financial
statements in accordance with generally accepted auditing standards and for
issuing a report thereon. The Committee's responsibility is to monitor and
review these processes and the activities of the Corporation's independent
auditors. The Committee members are not acting as professional accountants
or auditors, and their functions are not intended to duplicate or certify
the activities of management and the independent auditors or to certify the
independence of the auditors under applicable rules.
As Adopted 2/25/04
4
APPENDIX B
NOMINATING AND GOVERNANCE COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
ALLEGHANY CORPORATION
I. FUNCTION:
The Nominating and Governance Committee is charged with identifying and
screening candidates, consistent with criteria approved by the Board of
Directors, and making recommendations to the Board of Directors as to
persons to be nominated by the Board of Directors for election thereto by
the stockholders or to be chosen by the Board of Directors to fill newly
created directorships or vacancies on the Board of Directors; developing
and making recommendations to the Board of Directors as to a set of
corporate governance principles applicable to the Corporation; and
overseeing the evaluation of the Board of Directors and management.
II. ORGANIZATION:
A. The Nominating and Governance Committee shall be composed of two or
more directors appointed by the Board of Directors, each of whom shall
be independent, as determined by the Board of Directors consistent with
the requirements of the New York Stock Exchange. Subject to the
foregoing, the Board may remove and replace members of the Committee in
its discretion. The Board shall designate one of the members as
Chairman.
B. The Committee shall meet at such times and upon such notice as it may
determine.
C. A majority of the members then in office shall constitute a quorum. The
act of a majority of the members present at a meeting at which a quorum
is present shall be the act of the Committee.
D. The Committee shall have the authority to delegate its responsibilities
to a subcommittee of its members.
III. RESPONSIBILITY AND AUTHORITY:
A. The Committee shall identify and screen candidates, consistent with
criteria approved by the Board of Directors, and make recommendations
to the Board of Directors as to persons to be nominated by the Board of
Directors for election thereto by the stockholders or to be chosen by
the Board of Directors to fill newly created directorships or vacancies
on the Board of Directors.
B. The Committee shall develop and make recommendations to the Board of
Directors as to a set of corporate governance principles applicable to
the Corporation addressing, among other matters determined by the
Committee to be appropriate, director qualifications and
responsibilities, director orientation and continuing education,
management succession and the annual performance evaluation of the
Board. The
Committee shall, through corporate governance principles or otherwise,
assure that appropriate processes are in place for the Board, or a
committee thereof, to evaluate the effectiveness of management and
management succession plans. The Committee shall regularly review
issues and developments relating to corporate governance and shall
recommend to the Board proposed changes to the corporate governance
principles from time to time as the Committee determines to be
appropriate.
C. The Committee shall oversee the evaluation of the Board of Directors
and management and shall make recommendations to the Board with respect
thereto.
D. The Committee may retain and employ professional firms and experts to
assist in the discharge of its duties. The Committee shall have sole
authority to retain and terminate any search firm used to identify
director candidates, including sole authority to approve the firm's
fees and other retention terms.
E. The Committee shall annually evaluate its performance, the
qualifications of its members and the adequacy of its Charter, and
report thereon to the Board.
F. The Committee shall keep regular minutes of its proceedings and shall
report regularly to the Board of Directors.
As Adopted 2/25/04
2
ALLEGHANY CORPORATION
[ ] Mark this box with a X if you have made
changes to your name or address details above.
------------------------------------------------------------------------------------------------------------------------------------
ALLEGHANY CORPORATION -- ANNUAL MEETING PROXY CARD
------------------------------------------------------------------------------------------------------------------------------------
1 ELECTION OF DIRECTORS
Use a BLACK pen. Mark with [X]
The Board of Directors recommends a vote FOR the listed nominees. an X inside the grey areas
as shown in this example.
NOMINEES:
For Withhold
01 - Allan P. Kirby, Jr. [ ] [ ]
02 - Thomas S. Johnson [ ] [ ]
03 - James F. Will [ ] [ ]
2 RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors recommends a vote FOR the following proposal.
For Against Abstain
Ratification of KPMG LLP as independent auditors for [ ] [ ] [ ]
Alleghany Corporation for the year 2004.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE. IF NO CHOICES ARE INDICATED, THIS PROXY
WILL BE VOTED FOR ITEMS 1 and 2.
AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR INSTRUCTIONS TO BE EXECUTED.
Please sign exactly as your name or names appear hereon. For joint accounts, both owners should sign. When signing as executor,
administrator, attorney, trustee or guardian, etc., please give your full title.
Signature 1 - Please keep signature and title Signature 2 - Please keep signature and title Date (mm/dd/2004)
within the box within the box
-------------------------------------------------- -------------------------------------------------- -----------------
ALLEGHANY CORPORATION
--------------------------------------------------------------------------------
PROXY FOR ANNUAL MEETING ON APRIL 23, 2004
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints F.M. Kirby, John J. Burns, Jr. and Robert M.
Hart proxies, each with the power to appoint his substitute and with
authority in each to act in the absence of the other, to represent and to vote
all shares of stock of Alleghany Corporation which the undersigned is entitled
to vote at the Annual Meeting of Stockholders of Alleghany Corporation to be
held at RSUI Group, Inc., 945 East Paces Ferry Road, 18th Floor, Atlanta,
Georgia on Friday, April 23, 2004 at 10:00 a.m., local time, and any
adjournments thereof, as indicated on the proposals described in the Proxy
Statement, and all other matters properly coming before the meeting.
IMPORTANT-THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE